The Never-Ending Sale

A massive sea change is on horizon for the U.S. retail industry and apparel worldwide. It will begin on January 1, 2005, with little fanfare. When the New Year's ball falls in Times Square, all nations that are members of the World Trade Organization will drop their apparel quotas. Apparel prices could fall as much as 8 percent to 20 percent within a year for retailers and end consumers, according to industry analysts.

“But prices could drop even more, because nobody knows what will happen,” says Laura Jones, executive director for the U.S. Association for Importers of Textiles and Apparel.

What we do know is that WTO member countries with abundant supplies of cheap labor, like India and Pakistan, will no longer be limited in the amount of apparel goods they can export to the U.S.

Some quotas will remain. For example, the U.S. government can still impose textile safeguards (read: quotas) against recent WTO members such as China until 2007 and non-WTO members like Vietnam and Bulgaria.

Regardless, removing the limit on how much apparel can be purchased from one country means retailers will now pay less for clothing products. “The $64,000 question is whether they will choose to pass that savings on to the customer,” says Jonathan Fee, a partner in the Atlanta-based law firm of Alston & Baird.

Wal-Mart almost certainly will pass the savings on to the end consumer, due to a company policy that limits profit margins, says Jones. Other retailers will have no choice but to follow.

Retail analyst Britt Beemer, president of American Research Group, says this could be a win-win situation for retailers and their customers. “This is like always having a 20 percent sale,” he says.